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Yesterday I wrote about how Israel is trying to promote itself as the next hotbed of consumer and Internet startups, moving beyond its traditional roots in “hard” technology. But today comes news of a deal that is firmly about its existing might in the latter category: Cisco is reported to be gearing up to purchase interactive TV and security specialist NDS, founded in Israel in 1988, for a sum believed to be in the region of $5 billion. Update: Cisco has now issued a release confirming its intention to buy NDS. The deal is expected to close in the second half of 2012, and it will be incorporated into Cisco’s Videoscape platform, which covers cloud, network and end-user elements of the video delivery business.

According to the Israeli financial daily the Calcalist (translation here), the deal is expected to close in the coming days. NDS is 51 percent owned by Permira, and 49 percent owned by media giant News Corp.

NDS, which was founded in 1988, was bought by News Corp. in 1992 for the now-tiny sounding sum of $15 million. The company uses NDS’ technology in its extensive pay-TV business, for encoding of the set-top boxes and corresponding cards that enable them to run.

While the company has its roots in set-top box business for TVs, more recently it has been extending its delivery technology to other devices like tablets (kooky promotional shot from NDS’s site pictured here) as well as smartphones and PCs. Other companies using NDS’s technology include Astro, Bharti, Canal Plus, China Central Television, Cox, DIRECTV, Kabel Deutschland, UPC (a unit of Liberty Global) and Vodafone.

In 1999, NDS went public, but was again taken private in 2009 at a value of $3.7 billion, with Permira coming in to buy 51 percent, and News Corp. keeping the remainder.

That $3.7 billion is $1.3 billion less than the price Cisco is reportedly paying for it. The company brings in revenues of around $1 billion annually. It is now headquartered in the UK although continues to run an extensive R&D operation in Israel.

The deal, if accurate, would represent a significant investment on the part of Cisco in extending its home gateway business. It would also represent a step back for News Corp. from hardware and physical assets, putting by default more emphasis on its existing content businesses, which include entertainment studios, television channels, Internet properties and newspapers.

The news comes on the same day as another big deal in the vendor world: Avaya, a competitor to Cisco in the enterprise space, has bought Radvision for $230 million.

We have contacted Cisco for a comment on this story and will update as we learn more.

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